The Economic "Recovery"---- Big Spenders & Last Hurrah

[amborin]

Consumer spending trend is a shaky foundation for economic recovery




The surge in spending by upper-income Americans could be seen in the upturned sales of Neiman Marcus, Mercedes, Morton's restaurant and other companies catering to the affluent.


Increased consumer spending has fueled hopes that the current economic recovery will keep getting stronger, but behind the encouraging numbers is a little-noticed reality: Much of the new spending has come not from America's broad middle class but from a small slice of affluent people at the top.
And upper-crust spending, while welcome, can be worrisomely volatile: Since it involves luxuries, not everyday necessities, the buying can suddenly shrink if something such as the recent stock market plunge panics affluent shoppers.
What's more, some analysts calculate that another big chunk of the recent spending spurt has come from an even shakier source — delinquent homeowners who have more cash in their pockets because they've stopped making mortgage payments now that their houses are worth less than the loan amounts.



Economists' uneasiness over building a recovery on such uncertain foundations is all the greater because the larger fundamentals are also shadowed by uncertainty.

The improving job market should broaden the base of consumer spending, but wages are not expected to go up fast, which will crimp middle-class spending power.
Moreover, the job gains this year have gone largely to less-educated and lower-income workers, according to Labor Department statistics.
"The economy can grow if lower-income households aren't able to spend, but it can't flourish," said Mark Zandi, chief economist at Moody's Economy.com.

snip

The surge in spending by upper-income Americans could be seen in the upturned sales of high-end cars, clothing and luxury services. Nieman Marcus, Mercedes and Morton's restaurant, among other companies catering to the affluent, have prospered accordingly.
Since December, sales at luxury chains have outpaced those at department stores and discounters, helping boost overall consumer spending by a surprisingly robust 3.6% in the first quarter, according to data from the International Council of Shopping Centers.
But an economy that has become more dependent on the well-to-do is an economy at the mercy of volatile financial markets.

snip

In fact, Labor Department surveys show that the top 20% of U.S. households in income account for about 40% of all spending.
In recent months, the wealthiest Americans apparently have been driving an even more disproportionate share of consumption.
According to estimates from Economy.com, they'e also contributed an outsized share of the corresponding decline in saving, which has worried some analysts and policymakers. After rising to about 5% in the second quarter of last year, the personal savings rate fell below 3% this spring.

snip

But DuBravac also remains wary. He said recent data indicated that 18% of personal incomes are from unemployment benefits and other government payments, such as social security.
"We've seen spending increases, but it's come at costs in savings as opposed to real income increases," he said. "What we want to see is broad-based income growth, and not just a recovery in wealth."
Mike Grossman, who lives in the allas area, exemplifies the employment challenges facing many consumers — and the recovering economy.
This year, he spent about $6,000 for tools and supplies to landscape his home. But in March his software firm was sold to another company and his treasurer's job vanished.
Grossman, 45, has been looking for work ever since. "There's just more competition out there," said the single father of 13-year-old twin boys.
And until he lands a job, Grossman said, he won't be doing much spending.

[dmallind]

1. Hmm...

"In fact, Labor Department surveys show that the top 20% of U.S. households in income account for about 40% of all spending"


And what percentage of total income do the top 20% have? Much more than 40% so this is hardly a damning exposé of plutocrat-driven spending

"recent data indicated that 18% of personal incomes are from unemployment benefits and other government payments, such as social security."

Well since more than 18% of the population are on unemployment benefits or social security again why is this seen to be a problem?

[rfranklin]

2. Because the top one percent view those funds as their money...

being wasted by lazy unemployed and retirees.

[amborin]

4. the article wasn't trying to make those claims; its modest intent was to cast doubt on any "recovery

of course we know we're living in a plutocracy

[Donnachaidh]

3. linky link pleaase? n/t